Historically, Black, Indigenous, and people of color (BIPOC) and other minority entrepreneurs, including Asian Americans and women, have been underrepresented in the small business community. However, minority-owned businesses are growing at a rapid rate. According to U.S. Census Bureau data, the number of minority-owned companies has doubled in the last decade, even through the pandemic.
Are you a member of a minority community thinking about opening a new business? This guide explains what you need to know to launch and run one successfully, along with some resources you can access to get the support you need.
How to Start a minority-owned business
No matter your background, starting a business can be an intimidating process.
The good news is: Opening a minority-owned business isn’t all that different from starting any company. Add to this the fact that these types of companies can get certified as minority-owned businesses, which opens up opportunities that can help your organization launch effectively and grow over time.
Come up with an idea for your business
Some people become business owners because they’re entrepreneurs who are passionate about a great idea. Others want the independence of owning a company, but they need to develop a concept for their small business. If you’re an entrepreneur with a big idea, move on to the next section. However, if you need to come up with a concept, start by answering these questions:
- What do you have experience in?
- What resources do you have access to?
- What interests you?
- What problem can you solve?
- What are the needs in your community?
The final question may be the most critical since many minority communities are underserved in some ways, and a new business can fill a need.
Coming up with the right business idea isn’t always easy. Still, you owe it to yourself to do something that you enjoy, that you can make a living at, and that will connect with the people in your community.
You might also look into franchise opportunities as a way to open a business. Many leading franchises have initiatives for minority entrepreneurs looking to start businesses.
Write a business plan
Once you have an idea for your business, it’s time to plan out the details and write them all down. You can do this by developing a business plan. Not only is it a valuable exercise for planning your company, but a comprehensive business plan is often required for things like applying for financing.
Business plans differ based on what kind of business and the plan’s purpose. You may need a different version of your plan for building your team, pitching to investors, or applying for a loan.
Most business plans typically include the following sections:
- Executive summary. Explain the unique value proposition of your company
- Company overview. Detail all aspects of your organization, including your business background, leadership team, and locations.
- Market analysis. Provide an overview of your industry and local marketplace and how your business is different — and better than — competitors.
- Business organization. Include details on the legal structure of your business (corporation, limited liability company, partnership, etc.) and key executives.
- Products and services. Discuss the products and services offered by your company and your pricing structure.
- Marketing and sales plan. Describe how you expect to acquire, keep, and serve customers.
- Financial plan and projections. Explain how you will finance your business, whether it’s self-financing, loans, or equity. Create a revenue forecast and other financial projections for at least three years.
- Appendix. Add any additional information that could provide value.
Highlight anything related to your minority-owned status in your plan, including certification that might be helpful for potential investors, lenders, or employees to know and understand.
Register your business
Ensure you take care of the legal requirements for opening new businesses. Some of the requirements will be unique to your location and industry. Most companies will need to do the following:
- Register a business name. Not all companies will require a doing business as (DBA) registration. However, if you do, ensure you register with the appropriate agencies. A business lawyer with experience in your industry and community will be able to advise you.
- Choose a legal structure for your organization. The business entity type you choose (incorporating, forming a partnership, becoming an LLC, etc.) dictates how your business is organized and run and the taxes you pay. There are pros and cons to each of the different entity types. Consult with an attorney to get advice on the best one for you.
- Register to pay taxes. Not all businesses will require an IRS employer identification number (EIN). However, getting one can be a helpful way to separate business and personal finances. In addition, your state and local governments will have specific requirements for registering for and paying taxes.
- Secure business licenses and permits. Depending on the location of your company, entity type, and industry, you may have to legally register with the state and apply for business licenses and permits. Certain companies will also be more likely to require specific licenses and permits. It’s common with medical practices, food service businesses, and childcare centers.
- Purchase insurance. Depending on the business equipment and property you own or rent and other factors, you may need certain types of business insurance. An experienced business insurance agent can advise you on the coverage you need.
If you’re uncertain about any aspect of setting up your minority-owned enterprise, get expert help. Small mistakes could end up costing a lot.
Get certified as a minority-owned business
Up until now, starting a minority-owned business is similar to opening any type of company. Now the process gets a bit different. Once you secure your business licenses and permits, consider getting minority-owned business certification.
This certification isn’t required to start your business. However, it can be beneficial as you get up and running. It will also provide opportunities for your business over time. A minority-owned certified business can qualify for some government benefits and minority business grants. You may be able to get approved for state and federal government contracts. It could also help you become a supplier for large companies that prefer to work with minority-owned organizations.
There are several local, state, and federal government agencies that offer minority business certification, including:
- The National Minority Supplier Development Council (NMSDC). NMSDC has a national office AND affiliated regional councils across the United States. It offers training and loan programs for small companies. If your NMSDC application is approved as part of the certification process, your company will become a minority-owned certified business referred to as an MBE. To qualify, your business must be at least 51 percent minority-owned and operated.
- U.S. Small Business Administration (SBA) 8(a) Business Development Program. The SBA 8(a) program helps minority-owned companies compete for federal government contracts. To become a part of this program, government agencies must reserve a significant portion of their federal contracts for 8(a) organizations. To qualify for this business opportunity, a company must be 51 percent owned by someone who is either socially or economically disadvantaged.
- Department of Transportation (DOT) Disadvantaged Business Certification Program. Federal agencies that get funding from the DOT must set aside at least ten percent of their budgets for contracts awarded to minority-owned businesses owned by U.S. citizens. These Disadvantaged Business Enterprise(DBE) programs differ by state. Check your state’s DOT website for more information.
- SBA Women-Owned Small Business (WOSB) Program Certification. This certification allows women-owned businesses to compete for government contracts reserved for them. It also provides access to resources to help women-run companies. You can also become certified as an economically disadvantaged women-owned small business (EDWOSB) if you meet specific criteria.
- Women’s Business Enterprise National Council (WBENC) Certification. Like NMSDC certification for minority-owned businesses, WBENC certification helps women-owned companies access opportunities from WBENC corporate members and government agencies. To qualify, your company must be 51 percent owned, controlled, operated, and managed by a woman or women.
In addition to these options, you might consult your local and state business agencies to see if they have additional minority-owned business certifications. Be aware that the application process for these certifications differs, but all are relatively quick, easy, and worthwhile.
Get business financing
Depending on your financial situation, you may need to secure funding for your business. It can be challenging for new minority-owned enterprises to qualify for many types of funding. Some options include traditional debt-based financing, equity financing, crowdfunding, or getting cash from friends and family.
Here are some funding options new minority businesses may qualify for:
- Small Business Administration (SBA) Community Advantage Loans. This SBA loan program was developed to meet the financial needs of small businesses in underserved markets. The program allows local community lenders and nonprofit organizations to make loans of up to $250,000. The SBA guarantees them up to 85 percent of the loan amount. The program services small business owners who typically don’t qualify for traditional financing.
- Microloans: Accion, an international non-profit microloan organization, has a U.S. microlending program. It focuses on low- to moderate-income business owners who find it challenging to access capital through traditional financial institutions. Accion’s loans are not minority-specific, but many people who are minorities qualify for them.
- Online alternative lenders. Minority entrepreneurs often have trouble getting financing from traditional banks because of credit inequality and challenging eligibility requirements. If you find yourself in this position, look into an online lender to find funding. These lenders often place less emphasis on credit and more on business revenue. Plus, the online application is typically faster and easier than the ones for traditional banks. Be aware that interest rates from alternative lenders are often higher than traditional ones, and loan terms are less favorable. However, they could be the only option for some minority entrepreneurs.
- Union Bank: If you operate a minority-owned business in California, Georgia, Illinois, New York, Oregon, Texas, or Washington, the Union Bank’s small business loan program could be a possible funding solution. If your annual revenue isn’t greater than $20 million and you’ve been in operation for two years, you could be approved for a minority business loan. They lend up to $2.5 million to businesses that are at least 51 percent minority-owned.
- Business Consortium Fund. Minority-owned businesses in need of working capital loans or business lines of credit may be able to turn to the Business Consortium Fund, a certified not-for-profit that helps small businesses across the United States. They offer funding of between $75,000 and $500,000 with repayment terms of up to seven years. To be eligible, you’ll need to be an NMSDC-certified minority-owned business.
- Unshackled Ventures: First-generation immigrant entrepreneurs seeking venture capital should look into Unshackled Ventures. This venture capital firm invests only in immigrant-owned businesses that demonstrate the potential to earn high returns.
- And more! There are tons of programs designed to assist minority business owners with the process of starting their own company. Many of these are local programs that are specific to communities and their residents. So be sure to look around near you, check with your Chamber of Commerce, and keep an open eye out! The opportunity you need to get started could be hiding in plain sight!
One other possible option for relatively new organizations is a small business grant, which is often offered by non-profits and government agencies. The good news with a grant is that when you receive one, you never have to pay the money back.
Ultimately, it’s entirely up to you to decide what financing is best for your minority-owned business. Once you receive the funding, you’ll be on your way to successfully running and managing your company.
Resources for successfully managing your minority-owned business
There are many resources available to help minority entrepreneurs manage their businesses, including:
- U.S. Small Business Administration (SBA). The SBA has unparalleled resources and tools to help small business owners handle virtually any issue, including writing business plans. The website has information on government contracting and SBA loans and grants, some reserved for minority businesses.
- National Minority Business Council. This organization offers activities such as the Entrepreneurial Bootcamp and Executive Management Program to support minority business owners.
- Minority Business Development Agency. This is an agency within the U.S. Department of Commerce. It helps connect minority-owned businesses with capital, contracts, and markets they need to succeed.
- Black Founders. Black entrepreneurs in the tech industry often turn to Black Founders. It offers programs that connect Black tech entrepreneurs with learning resources, networking opportunities, and funding sources.
- Change Catalyst. This organization provides support to minority small business owners. An exciting option is its Startup Fellows Program. It works with entrepreneurs from underrepresented demographics and helps their businesses succeed by providing education and funding.
- U.S. Minority Chamber of Commerce. This group offers programs, including an Advanced Entrepreneurship Training Center and their Global Entrepreneurs Virtual Centers. It provides national and local U.S. Chamber of Commerce chapters for Black, Asian and Hispanic entrepreneurs. It has advocacy groups that champion legislation beneficial to entrepreneurs, along with business resources and networking opportunities.SCORE. This resource partner of the SBA helps entrepreneurs at any stage of business ownership. This small business association comprises more than 10,000 volunteer business mentors in 300 chapters nationwide. They serve as advisors, coaches, or mentors in your industry. It is one of the top mentorship programs for minority business owners.
- U.S. Department of the Interior Native American Business Development. The U.S. Department of the Interior Office of Indian Affairs backs this unique program. It offers technical assistance to Native American small business owners, including accessing government and private procurement opportunities.
- DigitalUndivided. This startup incubator guides Black and Latina women business owners from startup to success.
Minority small business owners have plenty of options for getting help starting and operating their businesses. You owe it to yourself to take full advantage of all available.
Minority Businesses: From Startup to Success
For the most part, learning how to start a minority-owned business or a woman-owned company is mostly the same as starting any business. However, it’s essential to consider the different certifications and other benefits you can get for your minority-owned business.
Countless resources are available for learning, networking, and business financing opportunities. Take advantage of local and national options available to you. It will make it more likely your startup will become a success.